Monday, October 27, 2008

A few days old but still worth linking to, Robert Sameulson writes on the intergenerational conflict implicit in entitlement reform.

You're being played for chumps. Barack Obama and John McCain want your votes, but they're ignoring your interests. You face a heavily mortgaged future. You'll pay Social Security and Medicare for aging baby boomers. The needed federal tax increase might total 50 percent over the next 25 years. Plus there's the expense of decaying infrastructure -- roads, bridges, water pipes. Pension and health costs for state and local workers have doubtlessly been underestimated. All this will squeeze other crucial government services: education, defense, police.

Guess what. You're not hearing much of this in the campaign. One reason, frankly, is that you don't seem to care. Obama's your favorite candidate (by a 64 percent to 33 percent margin among 18- to 29-year-olds, according to the latest ABC News/Washington Post poll). But he's outsourced his position on these issues to the AARP, the 40-million-member group for Americans 50 and over.

I agree with Samuelson that population aging implies tough decisions, and the welfare of different generations will depend on what those decisions are and when they are made. We should attempt to smooth costs and benefits evenly over generations, rather than letting some groups do well and others poorly.

That said, as I've argued elsewhere, I don't believe the underlying Social Security problem is one of greedy Baby Boomers or anything like that. (That might be the problem with Medicare, but that's another story…) Most current and future retirees under Social Security more than paid for their benefits, meaning that their contributions – compounded at the interest rate earned by the trust fund – are enough to finance their benefits. The problem is an inherited "legacy debt" from prior generations, who received much more than they paid for and left the program underfinanced for the long-term. This means a) that there's nothing we can do about the Social Security deficit except suck it and figure out tax increases and/or benefit cuts; but also b) that there isn't a huge moral conflict between young and old, such that one is the victim and the other the villain.

So young voters should get mad – at politicians who refuse to take on the tough but important issues. But they shouldn't necessarily get mad at older voters.

4 comments:

Joe the taxpayer
said...

In Samuelson's world, and maybe yours too, taking 1% of GDP a year from defense/homeland security spending and putting it into SS would cause a giant rift in the earth's surface that would swallow our entire country, right?

This is entirely an ideological commitment and has nothing to do with what would maximize the welfare of the country.

If people want to afford SS they will pay for it. It's pretty much that simple, and you know it. You are way too smart for rank demagoguery.

If people want to pay in 1% of GDP more, they can. Or, if they'd prefer to cut benefits by 1% of GDP, they can do that too. The problem seems to be that everyone wants everyone else to pay more, not themselves. To make Social Security sustainably solvent would involve an immediate and permanent payroll tax increase of around 3.2 percentage points, to a total payroll tax of 15.6%. Do you want to pay that? Or would you prefer other people to pay it? While I don't know your preferences, it's much more common to hear the latter.

The problem is the assumption that a choice to pay that extra tax would somehow lead to disaster. I think that distorts the public choice.

The public discussion is polluted with a lot of hyperbole and efforts to emotionalize the decision. Both sides share some blame. The choice is never really put to the public, what are you willing to pay for a viable social security system and how should we distribute the costs? It's not an adult discussion, and although you are a very sophisticated person , I think you are doing plenty to both inform and distort.

For example, I proposed that it would be possible to shift 1% of GDP's worth of tax resources we spend on defense and instead give it to SS (how much did we waste in Iraq?). Maybe that is plausible and maybe not. But we could do that without raising payroll taxes one bit. And yet your response was we'd have to raise payroll taxes to ~16% of payroll to make SS solvent, doesn't that sound horrible.

About me

I am a Resident Scholar at the American Enterprise Institute in Washington, where my work focuses on Social Security policy. Previously I held several positions within the Social Security Administration, including Deputy Commissioner for Policy and principal Deputy Commissioner. Prior to that I was a Social Security Analyst at the Cato Institute. In 2005 I worked on Social Security reform at the White House National Economic Council, and in 2001 I was on the staff of the President's Commission to Strengthen Social Security. My Bachelor's degree is from the Queen's University of Belfast, Northern Ireland. I have Master's degrees from Cambridge University and the University of London and a Ph.D. from the London School of Economics and Political Science. I can be contacted at andrew.biggs @ aei.org.